Big Win/Big Loss If you just made a significant gain or loss and sold your position then you may want to consider taking a few days off before your next transaction. The heady feeling of a large gain or the sorrow of a loss will affect your next transaction.
Leave it Behind A large gain or loss is yesterday's news. Put it behind you and move on. Instead learn from what you did right or wrong and make a better decision in future trades.
Don't Fall in Love A stock is simply part ownership of a company you feel will increase in value. One of the mistakes made by investors is to get attached to a company they own with the steadfast belief that it will rebound, recover or otherwise turn itself around. The usual scenario is an investor who loves an equity and keeps holding it as it spirals downward.
Diversify This makes your portfolio far more stable and reduces the stress and anxiety you might face with a limited investment spectrum. This strategy will reduce the likely amount of volatility in an overall analysis for your portfolio.
Stick to the Plan Buy an equity, setup your sell targets and stick to it. While new information is certainly the time to re-evaluate your targets and investment horizon, you should also have a plan that has been worked out before the purchase was ever made.
Prices are set by where a company appears to be going, not where it's been. Investors buy stocks with the expectation that they'll be able to sell them for higher prices at some time in the future. That means they expect that earnings will likewise grow. And if they don't, the best past performance in the world isn't going to help.
A stock's underlying value is not always reflected in its price. Because investors judge a stock based on its probable future profits, a $100 stock can be viewed as cheap if the company's prospects are bright, while a $2 stock can be expensive if its prospects are dim.
Do your research. You can often get a sense of whether a stock is over or undervalued by comparing its specific performance ratios, like price-to-earnings, debt-to-equity, price-to-sales and return on equity, to those of other companies in the same industry or to the market as a whole.
Avoid water-cooler stock tips These are usually going to cost you money and it's best to avoid investing via other's stock tips.
Place a Limit Order This type of order will allow you to set the price you wish to pay. If the price doesn't hit your target the the trade is not processed.
It seems like stocks often drop excessively on just a little bit of bad news. The prevailing logic is that a small bit of bad news can be the precursor to more bad news. This can mean an excellent buying opportunity if investors have pulled out of a stock on an unsound basis.
I saw good news in the paper today. Should I buy the stock? By the time it hits the newspaper the odds are that the stock price already reflects that news. However, these stories can lead you to profitable firms.
Beware of commission Make sure your trades are large enough to make commission the smallest possible percentage. Per share commission will affect your profits and a high value will require the stock to go up in value just for you to break even.
Should I look at a chart before I purchase a stock? Definitely. If you have a full service broker, he should send you a chart, Value Line report, and S&P report.
Should I keep looking at charts while I am holding my positions? Not necessarily. Tracking your stocks is always a good idea, but the frequency will depend on your investment time-frame, the volatility of your positions and your tolerance for risk.
Technical or Fundamental Analysis Fundamentalists look balance sheets, talk to CFO's, and evaluate product lines to predict a company's performance and, by extension, its stock price. Technicians, don't care what the company does or where it's profits are but rather use historical statistics of investor supply and demand to extrapolate future stock-price patterns.
Know your time-horizon How close you are retiring will have an impact on your trading strategy. It is usually to increase risk the further away from retirement the investor is.
Be comfortable with your strategy If you aren't comfortable with options, puts, calls etc.. then don't use them. You may want to consider an industry course to understand these trading vehicles better but learning with your own money isn't wise.
Sell for a capital loss If your capital gains are especially high in a single year, you may want to consider selling a stock that is down to generate a capital loss. You can buy back the security after 30 days (IRS will not count a capital loss on a stock bought back sooner than that)
Know your source of information Make sure your financial information is coming from professionals who do not have any vested interest in the stocks they recommend. You want to make sure that the information you get is unbiased.